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Attention dividend hunters! Microsoft Corporation (NASDAQ:MSFT) will be distributing its dividend of US$0.46 per share on the 14 March 2019, and will start trading ex-dividend in 2 days time on the 20 February 2019. Should you diversify into Microsoft and boost your portfolio income stream? Well, keep on reading because today, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
See our latest analysis for Microsoft
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How well does Microsoft fit our criteria?
The current trailing twelve-month payout ratio for the stock is 40%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect MSFT’s payout to remain around the same level at 37% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.8%. In addition to this, EPS should increase to $4.68.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. MSFT has increased its DPS from $0.52 to $1.84 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Microsoft generates a yield of 1.7%, which is high for Software stocks but still below the market’s top dividend payers.
Next Steps:
Keeping in mind the dividend characteristics above, Microsoft is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three key aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for MSFT’s future growth? Take a look at our free research report of analyst consensus for MSFT’s outlook.
- Valuation: What is MSFT worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MSFT is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.